The best-known businesses in the world tend to be concentrated in the technology sector. Companies like Apple (AAPL, Financial), Alphabet (GOOG, Financial), Facebook (FB, Financial) and Microsoft (MSFT, Financial) tend to dominate the headlines. But that doesn't mean that investors shouldn't search for value in more traditional industries. In a 2009 interview with Charlie Rose, Warren Buffett (Trades, Portfolio) explained why Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) invested $25 billion in the Burlington Northern Santa Fe Railroad Co.
Things go back to normal
The BNSF Railroad is the biggest cargo railroad in North America. During the financial crisis of 2008, there were many mainstream voices that were genuinely worried that the American financial system would collapse. Consequently, there were plenty of pessimistic sellers that were trying to get rid of assets they no longer believed would be useful. Buffett's gamble on BNSF was essentially a bet that things would, at some point, go back to normal.
Buffett believes that 2008 was the closest that the United States had ever come to a full financial meltdown during his lifetime - even more so than during the Great Depression, because of how quickly the contagion spread in 2008. So it's easy to understand why so many people were pessimistic about the state of the economy. Buffett's great insight was being able to forecast that demand for transport would recover in the mid- to long-term future:
"I felt like it was an opportunity to buy a business (BNSF) that is going to be around for 100 or 200 years, that's interwoven with the economy in a way that if the economy prospers, the business will prosper. It is the most efficient way of moving goods in the country, it's the most environmentally friendly way of doing so - and both of these things are going to be important. The biggest thing is: the United States is going to continue to do well...It moves a tonne of goods 470 miles on one gallon of diesel. A train replaces 280 trucks on the road and emits far less into the atmosphere that's damaging."
Buffett also went on to point out that since the population of the United States is growing, the demand for goods and transportation is also likely to rise. This illustrates the big difference between making short-term predictions (what interest rates will be next year, what earnings a company will report and so on) and making decisions based on long-term trends that are already underway. Buffett has made a living by viewing the world through the prism of decades, rather than weeks or months. Other investors can learn a lot by emulating this approach.
Disclosure: The author owns no stocks mentioned.
Read more here:
- Howard Marks: When to Buy and When to Sell
- Bill Nygren: Are Large-Cap Stocks Less Risky Than Smaller Companies?
- Disney's Pivot Toward Streaming: An Accelerated Inevitability
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